Readers, I confess that I have not followed the blockchain/cryptocurrency universe for awhile; at one time, I followed CoinDesk but sadly, I was not able to distinguish actual news from breathless evangelism, not to say calculated propaganda, so I gave up the unequal struggle. However, now that Facebook has announced Libra[1], which is a blockchain cryptocurrency at least for marketing purposes[2], I’ve brushed up on the topic enough do this round-up. Bloomberg summarizes Libra:

Facebook Inc. unveiled plans for a new, global financial system with a broad group of partners from Visa Inc. to Uber Technologies Inc. on board to create a cryptocurrency it expects will one day trade much like the U.S. dollar and inject a new source of revenue. Called Libra, the new currency will launch as soon as next year and be what’s known as a stablecoin–a digital currency that’s supported by established [fiat] government-backed currencies and securities [see Reuters on stablecoins here]. The goal is to avoid massive fluctuations in value so Libra can be used for everyday transactions across Facebook in a way that more volatile cryptocurrencies, like Bitcoin, haven’t been. To come anywhere close to matching the U.S. dollar for utility and acceptance, Libra will need to be widely trusted.

As we shall see below, trust issues are key to the entire venture. Friend-of-the-blog Matt Stoller has an Op-Ed in the New York Times that you should all read; he expands on how the “partnership” may work:

As far as I can tell, Facebook aims to build a new payments and currency system using blockchain technology. Facebook is starting a subsidiary, Calibra, to “provide financial services” to individuals and businesses, including saving, spending and sending money. The actual standards for the currency will be managed by a nonprofit in Switzerland called the Libra Association. The currency will have its own central bank known as the Libra Reserve, and the board will be the committee of corporations that helped set it up.

Finally, a cryptocurrency with the ethics of Uber, the censorship resistance of PayPal, and the centralization of Visa, all tied together under the proven privacy of Facebook. Just what I’ve been waiting for.

As Hyman Minksy famously said: “Everyone can create money; the problem is to get it accepted.” That places — absent force majeure — trust, and lack of trust, at the center of the Libra effort. Libra’s trust issues sort themselves into three buckets: User, Technical, and Regulatory. I will look at each of these topics in turn, and conclude by considering (as Stoller does) whether Libra is a sovereign (wannabe or not).

The final question concerns how widespread usage will be. Consumer privacy concerns mean users are already revoking Facebook permissions. If they do not trust Mr Zuckerberg’s company with their phone number why would they trust it with their money?

One reason to answer no is that Facebook CEO Zuckerberg is a vicious and unrepentant crook and con-man, and has been since his days at Harvard. Famously, this chat session:

ZUCK: yea so if you ever need info about anyone at harvard ZUCK: just ask ZUCK: i have over 4000 emails, pictures, addresses, sns FRIEND: what!? how’d you manage that one? ZUCK: people just submitted it ZUCK: i don’t know why ZUCK: they “trust me” ZUCK: dumb fucks

Regulatory pressure on Facebook has never been greater. The Federal Trade Commission is finalizing an investigation into its privacy practices, which the company has said could lead to a fine up to $5 billion. Presidential hopefuls Elizabeth Warren (D-Mass.) and Bernie Sanders (I-Vt.) have called for investigations into the big tech companies and the power they wield over Americans’ lives. Facebook co-founder Chris Hughes has said the social network should be broken up. Reacting to the Libra announcement, Ohio Senator Sherrod Brown, the top Democrat on the U.S. Senate Committee on Banking, Housing, and Urban Affairs, said, “We cannot allow Facebook to run a risky new cryptocurrency out of a Swiss bank account without oversight. I’m calling on our financial watchdogs to scrutinize this closely to ensure users are protected.”

[M]ost people I’ve spoken with in recent days believe Libra can be successful, largely because of Facebook’s enormous scale. They’ve posited that the platform’s unprecedented user base is the only global population that’s big enough to organize around a single currency.

Creating a “stablecoin” digital currency pegged to a basket of assets and a digital wallet that can hold it is well suited to the international remittance market.

And remittances are a nice little business to be in. From the World Bank:

In 2019, remittance flows to low- and middle-income countries are expected to reach $550 billion, to become their largest source of external financing…. The global average cost of sending $200 remained high, at around 7 percent in the first quarter of 2019, according to the World Bank’s Remittance Prices Worldwide database.

7% is a pretty big cut if you’re a “helper” in Hong Kong sending money back to the Philippines, so the remittance market would indeed seem ripe for disruption.

Bitcoin’s digital gold, but Facebook’s Libra is the digital dollar—here’s why that matters

[Bitcoin bull Brian Kelly], founder and CEO of BKCM and resident bitcoin expert on CNBC’s “Fast Money,” said there are some crucial differences between Libra and a cryptocurrency like bitcoin. With Libra, Facebook users will be able to exchange their dollars for Libra tokens, thus entrusting Facebook and its fellow backers with building a reliable ledger of all transactions, Kelly said.

“You have to trust Facebook that they’re going to hold onto those dollars, they’re going to keep track of the ledger, and that your token’s going to be worth something. You go out, you buy your goods and services on the Facebook platform, whoever else is using it. Maybe Uber somehow is involved. And then you’re left with the Libra tokens that are left over,” he said.

That trust defines the main difference between cryptocurrencies like bitcoin and Libra, Kelly said. Bitcoin buyers don’t need to entrust a third party with their money or information, whereas Libra users will have to trust the company that has perhaps been most plagued by issues around trust and privacy: Facebook.

“This is about that trusted third party and, to me, that’s the revolution of crypto, is that it is peer-to-peer. You disintermediate financial services,” Kelly said. “So, when you talk about the differences between this and something like bitcoin, bitcoin is trustless. You don’t need to believe that anybody’s going to check that ledger; you can do it yourself.”

That distinction may not matter to the Hong Kong helper; it may matter very much to users in the United States or the European Union. The pink paper’s question remains salient: “If they do not trust Mr Zuckerberg’s company with their phone number why would they trust it with their money?”

Technical Trust

Libra is not only a group of partners, a governance structure, and a currency: It is software that delivers financial services in that currency. Bloomberg’s Joe Weisenthal offers perspective:

I think Facebook is aspiring to be to Libra what Google is to the Android operating system. In other words, if successful, the right way to think about this is not as a coin or a cryptocurrency, but rather an open-source platform for building money-moving applications. Unlike traditional open source software, which anyone can in theory fork, modify or develop for their own needs, a monetary system must maintain some consensus on things. What is the unit of account? Who has the money? Who is allowed to issue it? And so unlike a normal piece of software, an open-source money system needs all kinds of governance mechanisms. But in theory, if Libra launched and gained momentum, you could imagine it as a platform in which anyone anywhere could write an app that moves money to anyone else in a fashion they please. Right now, there are numerous closed payment applications, but they’re not interoperable. A person using Venmo can’t send money to someone using Zelle or WeChat. The potential with Libra is that they could.

But should we trust the application developers? From TechCrunch, “The real risk of Facebook’s Libra coin is crooked developers”:

Facebook naturally has a huge target on its back for hackers. Not just because Libra could hold so much value to steal, but because plenty of trolls would get off on screwing up Facebook’s currency. That’s why Facebook open-sourced the Libra Blockchain and is offering a prototype in a pre-launch testnet. This developer beta plus a bug bounty program run in partnership with HackerOne is meant to surface all the flaws and vulnerabilities before Libra goes live with real money connected.

Yet that leaves one giant vector for abuse of Libra: the developer platform.

“Essential to the spirit of Libra . . . the Libra Blockchain will be open to everyone: any consumer, developer, or business can use the Libra network, build products on top of it, and add value through their services. Open access ensures low barriers to entry and innovation and encourages healthy competition that benefits consumers,” Facebook explained in its white paper and Libra launch documents. It’s even building a whole coding language called Move for making Libra apps.

Yet the Libra Blockchain itself is irreversible. Outside of custodial wallets like Calibra, there’s no getting your stolen or mis-sent money back. There’s likely no customer support. And there are plenty of crooked crypto developers happy to prey on the inexperienced. Indeed, $1.7 billion in cryptocurrency was stolen last year alone, according to CypherTrace via CNBC.

Of course, all financial systems enable fraud to some extent; the question is whether Libra enables fraud at scale; and one answer is that if enough developers are crooked, it will. But there’s another reason for concern, more basic to the nature of computing.

The moral is obvious. You can’t trust code that you did not totally create yourself. (Especially code from companies that employ people like me.) No amount of source-level verification or scrutiny will protect you from using untrusted code. In demonstrating the possibility of this kind of attack, I picked on the C compiler. I could have picked on any program-handling program such as an assembler, a loader, or even hardware microcode. As the level of program gets lower, these bugs will be harder and harder to detect. A well-installed microcode bug will be almost impossible to detect.

At this point, we note that Move, the language in which Libra apps are written, has, if not a compiler per se, a bytecode verifier and a bytecode interpreter. Of course, I could have unknowingly slipped over the line into paranoid fantasy. However, consider that a Trojan Horse backdoor into the transactions of two billion people would be an asset of almost inestimable value to Zuckerberg and his posse as a form of primitive accumulation. And if you view the Libra ecosystem as a phishing equilibrium, if fraud can happen, it has already happened.

Regulatory Trust

Regulators, even in these benighted times, at the very least insist that regulatory forms be obeyed. Here I will consider, in the United States, the states, Congress, and most importantly, the IRS. Finally, I will consider the reaction international regulators.

I have heard that at the state level, the price of regulatory forbearance is a steak dinner. Certainly Uber has done very well for itself. And Libra is making progress:

Another tidbit on the regulatory side of Facebook's new #crypto project #Libracoin: Calibra has 7 state money transmitter licenses so far, the earliest from mid-April.

The Senate Banking committee on Wednesday set July 16 as the date to hold a hearing centered on Facebook Inc.’s Libra coin. House Financial Services Committee head Maxine Waters on Tuesday said Facebook “is continuing its unchecked expansion and extending its reach into the lives of its users.”

“The cryptocurrency market currently lacks a clear regulatory framework to provide strong protections for investors, consumers, and the economy,” Ms Waters said in a statement on Tuesday, as she called on regulators to “get serious”.

A true cryptocurrency such as Bitcoin or Libra is considered property by the Internal Revenue Service. That means a gain of $1 due to volatility between when the cryptocurrency is acquired and when it is transferred to someone else is a $1 taxable event. And since any integration into Facebook Messenger or WhatsApp is under the control of Facebook, Facebook should probably file income tax documents and keep track of the otherwise difficult cost-basis math on behalf of Facebook’s customers, like other investment brokerages do. The IRS needs to remind both Facebook and the public of these implications and requirements. Of course this would make Libra completely useless in the U.S. by increasing the cost of using it beyond any utility.

The G7 working group will also consider how to ensure proper controls against money-laundering, according to a letter from Bruno Le Maire, the French finance minister, and François Villeroy de Galhau, the governor of the Banque de France. The French hold the rotating presidency of the G7.

Central banks and the International Monetary Fund will also participate, according to the letter, which was seen by the Financial Times.

[A]t the top of the list is money laundering. Before traditional lenders open accounts for customers, they must undertake rigorous background checks to ensure funds are not ill-gotten gains.

Facebook’s plans allow for “pseudonymous” users able to create multiple accounts not based on their real-life identity.

“This approach is familiar to many users, developers, and regulators,” its official documents read.

One UK official remarked: “This is particularly weasel-worded. We may be familiar with it but that doesn’t make us comfortable with it.”

Trust once more.

Sovereigns and Sovereignty

Stoller, in his Op-Ed, raises the question whether Facebook is heading toward some form of sovereignty (real, not metaphorical):

A permissionless currency system based on a consensus of large private actors across open protocols sounds nice, but it’s not democracy. Today, American bank regulators and central bankers are hired and fired by publicly elected leaders. Libra payments regulators would be hired and fired by a self-selected council of corporations. There are ways to characterize such a system, but democratic is not one of them.

Years ago, Mark Zuckerberg made it clear that he doesn’t think Facebook is a business. “In a lot of ways, Facebook is more like a government than a traditional company,” said Mr. Zuckerberg. “We’re really setting policies.” He has acted consistently as a would-be sovereign power. For example, he is attempting to set up a Supreme Court-style independent tribunal to handle content moderation. And now he is setting up a global currency.

The way we structure money and payments is a question for democratic institutions. Any company big enough to start its own currency is just too big.

While Zuckerberg’s “”Move fast and break things” does seem uncomfortable like an American-style version of fascist legal theorist Carl Schmitt’s “Sovereign is he who decides on the exception,” I’m not sure how Facebook, absent the coercive powers of a typical state, can be said to be sovereign. Also, Facebook relies on fiat currency created by states; it’s not (at this point) seeking to challenge their respective national monopolies with its own global fiat currency. However, it does seem that as the liberal rules-based international order breaks down, various entities are attempting to fill the power vacuum (the ISDS system does this implicitly, just like Zuckerberg’s “independent tribunal”) and perhaps Facebook is morphing into one such entity. Would — say — the denial of Facebook financial services coerce a Hong Kong helper in the same way that the Hong Kong police would? Doubtful, but the future lies ahead.

Facebook however is committing to integrating Libra as the payment channel into its applications, bypassing the opportunity to integrate a more conventional solution similar to Venmo, M-pesa, Zelle, or ApplePay. Given a conventional solution would probably result in a payment channel rivaling PayPal’s $2 billion a year in net income, this represents a huge opportunity cost. It only makes sense for Facebook as a moral crusade rather than a business decision: it seems intended to be exempt from any government’s controls.

I find it unlikely that Facebook is engaged in a moral crusade of any sort. And I don’t see how Facebook can exempt itself “from any government’s controls” when the Libra is “backed by” fiat currencies minted by those same governments. Perhaps Facebook is taking the long view, and would prefer not to give Venmo et al. a cut. (But then why are they Facebook’s partners? Friends close, enemies closer?) Perhaps Facebook is willing to accept the opportunity cost because it is in quest for some other very great advantage as yet unseen; the transaction data of two billion users would seem of sufficient scale (see the discussion of Trojan Horses above). The future, again, lies ahead.

[2] FT Alphaville has a fine discussion of whether Libra is really a blockchain or not (no). “This is just one of a series of Alphaville posts on Libra coin, which we are calling Breaking the Zuck Buck, in which we will seek to show how nonsensical, pointless, stupid, risky, badly thought-out and blockchainless the whole thing is.”

About Lambert Strether

Readers, I have had a correspondent characterize my views as realistic cynical. Let me briefly explain them. I believe in universal programs that provide concrete material benefits, especially to the working class. Medicare for All is the prime example, but tuition-free college and a Post Office Bank also fall under this heading. So do a Jobs Guarantee and a Debt Jubilee. Clearly, neither liberal Democrats nor conservative Republicans can deliver on such programs, because the two are different flavors of neoliberalism (“Because markets”). I don’t much care about the “ism” that delivers the benefits, although whichever one does have to put common humanity first, as opposed to markets. Could be a second FDR saving capitalism, democratic socialism leashing and collaring it, or communism razing it. I don’t much care, as long as the benefits are delivered.
To me, the key issue — and this is why Medicare for All is always first with me — is the tens of thousands of excess “deaths from despair,” as described by the Case-Deaton study, and other recent studies. That enormous body count makes Medicare for All, at the very least, a moral and strategic imperative. And that level of suffering and organic damage makes the concerns of identity politics — even the worthy fight to help the refugees Bush, Obama, and Clinton’s wars created — bright shiny objects by comparison. Hence my frustration with the news flow — currently in my view the swirling intersection of two, separate Shock Doctrine campaigns, one by the Administration, and the other by out-of-power liberals and their allies in the State and in the press — a news flow that constantly forces me to focus on matters that I regard as of secondary importance to the excess deaths. What kind of political economy is it that halts or even reverses the increases in life expectancy that civilized societies have achieved? I am also very hopeful that the continuing destruction of both party establishments will open the space for voices supporting programs similar to those I have listed; let’s call such voices “the left.” Volatility creates opportunity, especially if the Democrat establishment, which puts markets first and opposes all such programs, isn’t allowed to get back into the saddle. Eyes on the prize! I love the tactical level, and secretly love even the horse race, since I’ve been blogging about it daily for fourteen years, but everything I write has this perspective at the back of it.

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60 comments

I think Facebook is becoming the state. Our federal state and local governments are becoming the vassals. The issue isn’t trust. It’s power and coercion. Facebook can install its own regulators and make it so we have no choice but to use this rent-extraction scheme to carry on with our lives.

Only because in the 80’s and 90’s politicians believed the talk that anti-trust enforcement could be eliminated because, they were told, the new digital technologies would automatically breakup or prevent monopolies forming, (think “disruption”).

Today, it’s pretty clear to even politicians that silicon valley has produced new price-gouging, too powerful monopolies. When even Peggy Noonan calls for tighter regulations on the too big tech powers, calls for their break-up into smaller companies, you know something has changed. The hypnotism has worn off. My 2¢.

Facebook has jumped the shark with this endeavor. The company who has as a business model, stealing your data and selling it, has now decided that instead of fixing that and making the one thing that was the original attraction to facebook, the feed, relevant again, the company is yesterdays news. If you use facebook you already know this.

Not mentioned in the “technical trust” section, but I think more likely than back doors, Trojan horses, hacking or direct theft, is the possibility/probability that the platform developers could devise a way to create these crypto bucks outside the official bookkeeping for their own personal enrichment. Virtual counterfeiting.

Doesn’t this just make Facebook a bank? You make a deposit, but instead of getting a check book, you get libra bucks. You transfer some libra bucks to your mistress in Berlin, and she exchanges them for Euro. So Facebook, like a bank, is essentially settling financial transactions. But what happens if there aren’t enough Euro in stock?

Why should it be “maintained”?
If that crap fails that should be a wrap for Zuck and all the fools who got in it.
Why do I say that?
Because the plan is to cause a crisis with all the other currencies and it be the only one standing.

Company script at the company store, that’s what this sounds like. But instead of the company workers it’s everyone else who is subjected to the company script. Spending your own money to buy their money to spend it then at their store, it sounds like it’s straight out of the gilded age. And when the customer doesn’t like what they bought for whatever reason the refund will always be in the funny money. I’m guessing that if you put your money in that sort of system, you can never really cash out. I know that with video games for example people already do essentially the same thing. But now we might be talking about tangible goods, which puts an interesting spin on it. All and all Libra sounds like a finely turned money pit.

I know that with video games for example people already do essentially the same thing.

Good example. Maybe a way to think of Libra then is as video game money, except more fungible. Yay? [I remember seeing the word fungible somewhere in connection with Libra so that seems to be the paradigm.]

In which case, how far can you stretch this? Matt Stoller sees the need to have some limits, e.g. for cross-border regulatory oversight, e.g. when it comes to sanctioning countries, maybe capital controls, etc. But what about “ordinary” stuff, the stuff that people engage in that they don’t necessarily want to have gov eyes or facebook eyes seeing, e.g. transactions “off the books”. Until that’s possible I don’t see Libra becoming a lingua franca that displaces cash. Who knows, once facebook gets people exposed to Libra, they’ll start to seek out other crypto-currency eco-systems that are more private. Maybe?

Of course that’s the same issue with conventional banking / credit card usage. But I don’t mind them at least having eyes to my transactions that are “on the books”. But I would certainly have qualms about letting facebook having visibility to even that.

Edit: but then I wouldn’t be surprised if “off the book” transactions are already being done via video-game currencies, just masking them to look legit.

Good roundup, thanks Lambert. It’s the “absent the coercive powers of a typical state” part that really feels ominous to me, though. They already extract taxes from digital citizens in the form of human data/information, is it really so hard for them to develop a physical enforcement arm or co-opt an existing one?

The other scary thing is that I think people will actually use it and not think about it much until all their tokens disappear. I mean, imagine what happens if they run this for a few years and decide it wasn’t such a great idea after all (RIP Google Reader)? Blockchain never really bothered me much because it was something people were largely doing as a hobby or speculation. But if people who *really can’t afford to lose any money* (i.e. remittance-senders) buy tokens and those tokens become worthless, that is a much bigger deal.

Libra. Are they claiming to have named it after the Scales in the Zodiac?

Libra = lira, which is a common name for currencies still in use. This is going to get, deliberately, confusing. Or are these peeps just that un-original?

Stealing from Wikipedia:
“The term originates from the value of a troy pound (Latin libra) of high purity silver. The libra was the basis of the monetary system of the Roman Empire. When Europe resumed a monetary system, during the Carolingian Empire, the Roman system was adopted, the so-called £sd (librae, solidi, denarii).”

I note three countries, especially Turkey, that use a lira. And in some languages, lira is the word for the English pound (currency), because a libra was a weight, as Wiki tells us above.

Ahead of the unveiling, Facebook explained to Quartz why the company selected the Libra name and symbol.

The name was inspired by the origins of money in Ancient Rome, where the Libra was a unit of weight used to mint coins, according to a Facebook spokesperson. Libra also evokes the French libre (“free”), the spokesperson added, and reflects the corresponding astrological symbol—the scales of justice, relevant in theory because the crypto is meant to make financial inclusion standard around the globe. The new crypto’s symbol, a wave, “represents the energy that flows between us, the borderless nature of water, and the movement between people, places, and money,” the spokesperson said.

The thing is, Libra is also a tampon brand—and an extremely popular one in Australia, which observers instantly pointed out on Twitter.

Having read some of the critiques of this (Stoller’s in particular) I can’t help but feel that this is an attempt by Facebook to morph into a TBTF bank and benefit from the associated risk reduction to increase margins on leveraged tech adventurism of all kinds, in much the same way that Wall Street does for predatory derivative products and casino capitalism. If it was set up as described it would feature Facebook and the other validators operating as low risk/low margin infrastructure providers along with their decidedly not low risk/margin core business, which as we’ve seen before is a scenario ripe for abuse. I have not yet seen any mention of mitigation mechanisms for this, such as financial/business ring fencing arrangements like the ones that apply to telcos that own their own physical networks. Figuring out whether or not this is a real thing to worry about is above my pay grade – another question is whether this would end up being a full or fractional reserve system in relation to the fiat currency backing – but I think it’s what Stoller is getting at.

Regulators are already promising to look closely at this. It’s unclear to me whether this represents a genuine attempt to look out for the interests of the public or Wall Street protecting its patch. At present the two would seem to be pretty nearly congruent, so it might not be possible to tell for a while.

Every time someone buys Libra, that money will be deposited into a bank account where it will sit untouched so that every dollar’s or euro’s worth of Libra will be backed by a dollar or euro in the bank, according to the Libra design documents.

With this as the next sentence

This is important because the bank holdings of Libra will generate interest that can be used to pay back the cryptocurrency’s initial investors.

First have to laugh at the idea of the second bit, as if that’s the profit model, as opposed to charging for transaction fees between users, and whatever other eco-system synergies they get up to.

Not to say there isn’t profit in the interest on the dollars. But if they’re going to generate interest on the dollars in reserve, then those dollars aren’t in reserve anymore. They’re loaned out. What if there’s another GFC like in 2008/2009 and everybody wants to exit their “positions” and get their dollars back, will Facebook (or whoever the reserve is) be able to meet the redemption? A la https://www.investopedia.com/articles/economics/09/money-market-reserve-fund-meltdown.asp Seems to me that they’re still at risk of correlation with the underlying.

This is part of a series of articles, one of which addresses the point that Libra is committed to invest its reserves only in the safest of assets (specifically: “debt from stable governments with low default probability”).

Most stable governments with low default probability have debt trading below zero yield at the moment. So, even if Facebook weren’t culturally American, it would still have to allocate very heavily towards US Treasuries simply to generate enough yield on the float to cover costs.

To be relevant to potential users in Low Income Countries (excepting those with local currencies pegged to USD) it will either have to pass FX risk onto the end user (which is likely to trigger regulatory action banning it as a threat to local sovereignty) OR it would need to generate sufficient yield to absorb the x-currency risk… which it can’t, because it’s long low-yield sovereign debt.

Looks like a good series of articles by the way from what I’ve read so far.

I can understand the value to companies. But my understanding is that MC and Visa have agreements with companies that consumers pay the same regardless of whether they use credit cards vs cash. That said, I could imagine Visa and MC removing this policy when it comes to Libra transactions, so that the merchant as able to pass some of the 3% savings onto the consumer that uses Libra instead of credit card. So they would cannibalize one side of their business to capture it on the other side. Maybe?

2. Instant secure settlement vs stolen cards/fraud saves billions

I can see that having some appeal to my wife. Somehow she’s always having problems with credit card fraud on her cards.

But then Matt Stoller brings up an excellent point in his article

As one travel agent told Congress in 1970 when opposing the right of banks to enter his business, “Any time I deposited checks from my customers,” he said, “I was providing the banks with the names of my best clients.”

The issue here is a trust issue as well. But not whether the consumer trusts facebook. It’s whether the rest of the eco-system players trust facebook, to not compete with them. And maybe not to privilege some eco-system players over others – would there be a “net neutrality” regulatory apparatus?

3. $Libra will be run by a consortium of 100 including facebook, stripe, uber, PayPal, MasterCard and Visa 🤯

Still a walled garden at the end of the day. Hey Lambert, going to set up NC to accept tips in Libra?

It will be interesting to see if somebody’s already anticipated a “hype cycle” diagram for this. For instance, what happens after the “trough of despair”? At that point it’s less exciting to the point of being boring. And it’s at that point where non-true-believers eventually capitulate because it’s easier to capitulate than stay a hold out. I expect to be the last of the hold outs. Maybe when NC accepts tips in Libra, LoL.

Instant settlement is terrible for buyers. This is one of the huge defects of crypto that hypesters try to depict as an advantage. If you buy something with a credit card, you can later dispute the transaction if there was a problem, like the shipment was wrong and the merchant wouldn’t correct his mistake. You have zero recourse with final settlement save going to court.

Hi Yves, your post is giving me thought. At the end of the day, facebook would be the court. No different than how ebay, paypal and Amazon are the “court” for transactions which occur under their services. Basically if you want to continue doing business with ebay, paypal and Amazon, you have to abide their governance (and court decisions).

I could see facebook having a significant advantage though compared to ebay, paypal and Amazon. Presumably facebook will be a larger marketplace. Even when compared against Amazon, because Amazon is limited to physical goods and presumably facebook’s transactions go beyond that.

And this has some interesting potential. Facebook can position themselves as the defacto ledger for consumers, their wallet and receipts all-in-one. Yes, ultimately people can see their banking account as their ultimate ledger, but they can’t do conflict resolution of transactions through their bank. Same thing with their credit card as a ledger – the credit card company is not the final arbitrator when it comes to transactions effected through ebay or paypal or Amazon, etc. But as facebook displaces ebay, paypal and Amazon such that more and more transactions occur through facebook, then facebook becomes the final arbitrator. And once that happens, facebook wins the other side of that leg as well, it becomes the defacto ledger for most consumers. Again, their wallet and receipts, all-in-one.

All facebook needs to do is stand up the governance needed to resolve conflicts between consumers and merchants. And that should be a no brainer. Even facebook can be trusted by both sides when it comes to resolving conflicts in transactions.

It will start as a private, permissioned, not-trustless, centralized oligopolistic members-only club. So much for calling it “blockchain”. Like all “enterprise DLT” it is blockchain in name only and an monopoly to extract massive seignorage from billions of users. A monopoly scam.

Around here, San Francisco Bay Area, educated people don’t admit to using Facebook, and certainly no longer trust it with their real secrets. Are gullible people an ethnic group?
Can you ever confide in someone who hangs the details of their life out on the social gibbet?

Anyways, if I’m Facebook, I would campaign for companies (small, medium, big) to pay their employees in Libra. Then it would automatically go right into the bank-of-facebook.

And if I can get the Fed Gov on top of that to payout in Libra, than it would be game over. Facebook wins. It wouldn’t require the Fed Gov to adopt Libra as a fungible currency either. Presumably facebook would act as a gateway, accepting payout by the Fed Gov in dollars and converting that to Libras on behalf of those receiving the payment. Vice versa, presumably facebook could be the gateway to the Fed Gov for payment of taxes in the same way.

And as the winners that hoover up Libra want to swap their Libra holdings for US treasuries (so they can hoard that instead) presumably they would go through facebook as gateway as well.

If facebook can pull this off, it has a currency that parallels the dollar in the most meaningful ways for the main street economy.

A tremendous paper. Thanks for reminding me of this classic 1984 piece.
We should be reminded that it applies to *all* code (Android, iOS, Linux, Windows, …) that we use (“trust”) every day.

In fact, speaking from experience, I would argue that one cannot even trust one’s own code (the phenomenon of “accidental correctness”).

Given that, I am not sure this effort is remarkable in that regard. I already “trust” the programmers at Bank of America, Chase, Citi, Wells Fargo, and perhaps more disturbingly, several small credit unions.

> Given that, I am not sure this effort is remarkable in that regard. I already “trust” the programmers at Bank of America, Chase, Citi, Wells Fargo, and perhaps more disturbingly, several small credit unions.

But here, we create an enormous single point of failure* that is, moreover, owned by criminals whose business model is and has been stealing and reselling data from “dumb fucks.”

I think that in order to analyze the implications of what Facebook is trying to do you need to have a theory of money.

Bitcoin’s theory of money is straight out of Econ 101’s “barter to gold” story, which is demonstrably false and therefore bitcoin is doomed to fail as money. It is instead an electronic commodity which mimics gold; an asset which is no one’s liability.

On the other hand, If one combines Christine Desan’s work with Perry Mehrling’s use of balance sheets to help with analysis, then I think one can see money as a simply a particular type of debt.

Specifically, a creditor (e.g. the state) that has a very large pool of debtors is in a position to issue its own debt in exchange for real goods and services, if that debt has at least two characteristics:

1. The debt issued by the creditor will be available to settle claims which the creditor has against its pool of debtors.

2. The debt issued by the creditor is freely transferable and therefore any holder of the debt can use it to satisfy the holder’s obligations to the issuer.

So, money is debt issued by a “500 pound gorilla” capable of imposing obligations on a large pool of people.

Government qualifies as this type of player and sits at the top of the money/debt hierarchy because it has the power to declare its own debt as the means of final settlement of all financial claims.

Facebook in its current iteration does not. Facebook’s own liabilities won’t work as money because it doesn’t have a large pool of debtors who are obligated to it.

Instead, Facebook is setting up at least two banks. One is the “independent” entity governed by outsiders which is issuing bank debt/money (Libra) which it promises to convert into government debt/money.

The second bank which Facebook is setting up, IMO, is Calibra, which is where Facebook expects most (all?) participants to park their Libra.

So, Calibra’s balance sheet will have claims on the independent bank on its asset side and deposits due to consumers and others on its liability side. The deposits on Calibra’s liability side are not Libra. They are promises to pay Libra.

Calibra is a subsidiary of Facebook.

One question is what powers Calibra will have (other than as a place to park Libra and process the transfer of its Libra deposits from one user to another). Will Calibra, for example, have the power (now or in the future) to make loans denominated in Libra?

Also, will there be other entities possible which are like Calibra, or will Facebook monopolize that function?

If more than one “Calibra” is possible, then it seems to me that it is inevitable that some of those other “Calibra’s” are going to start making Libra denominated loans, which will expand the total amount of Libra denominated claims and, because there is the underlying promise to convert Libra into government money, a Libra banking crisis will also be inevitable.

This is all in addition to how the independent bank which will be taking in government money in exchange for Libra will:

1. Maintain something like parity between Libra and the pool of government money which “backs” it (thus the title of the FT series “Breaking the Zuck Buck”; and

2. Generate sufficient income from the “safe” investments it will make using the government money it has to cover operating expenses and return something to its original investors.

So, what about a country, for example France, just declaring it banned for all of its citizens? Outright refusing it to be used within its borders, or by its citizens, or et cetera. Could a government by convinced of the need, and could it be possible to enforce?

Something else to factor in when considering whether facebook may be able to achieve domination in this space. Have they achieved domination in other forms of human interexchange which come close to transactions, e.g. voice calling or even messaging / chatting for that matter?

I believe facebook can be used to place calls to people. But how much do people really do their calling through facebook? Why hasn’t that become the dominant form of calling? Even ignoring voice calling, what about messaging / chat? Does facebook dominate that?

If not, what’s been holding them back? I don’t know because I don’t use facebook, and I suspect that’s part of the answer :-). But ignore people like me. What about people who are already on facebook? I suspect part of the problem is that since facebook is optimized to be a publishing platform it isn’t the right context for communication. And it’s not even the right context for “closing the deal” on transactions in contrast say to ebay and Amazon.

But even then ebay had its dalliance with voice calling if I remember right and that was a failure. So go figure. But I think facebook will need to solve that where ebay could afford not to. Since ebay was limiting itself to merchant transactions and I think facebook will be going beyond that.

Anyways, something to think about. Whatever the answer to that is, what’s holding them back with respect to dominating these other domains, I suspect the same will be true for Libra.

By the way, with alipay in China I have the impression that people use it more for “brick and mortar” transactions. I.e. scanning QR codes at a physical point-of-sale. Maybe it got more traction in PC-based transactions afterwards? I don’t know.

And I believe alipay otherwise ties back to people’s bank accounts. There’s no new currency involved.

Can’t speak to wechat. But I believe even wechat has more of a smartphone pedigree (vice PC-based interactions). I’m assuming they don’t have a new currency either.

All that money. But does he have the capacity for intimate relations? People that like him and enjoy his company? Can he paint and sing and laugh? Go outside without his executive security detail watching every move? what’s life all about, anyway?

I think trust enters into it less than you might suppose. If Facebook and their consortium have enough power to dictate that all apps doing online money transactions with their platform must do so via Libra, and they make it easy for app developers to code and hard for them to code around; voila! Millions of Libra ‘customers’, not one asked if they trust it.

At this point, we note that Move, the language in which Libra apps are written, has, if not a compiler per se, a bytecode verifier and a bytecode interpreter.

I would make the minor point that introducing a new programming language, on top of everything else, is another reason to suspect this endeavor will turn out badly.

Defining, specifying, developing tooling for, and supporting a computer language is a huge endeavor requiring extreme and rare expertise, a large ongoing staff, and years of patient hard work with thousands of bug fixes and dozens of releases before it is even close to right. Take a look at the effort that has gone into, say, Java, another fairly simple interpreted byte code language intended to run on multiple platforms; it’s been under development for two decades with what I assume is millions of man-hours of effort. And it’s still not that great.

The fact that this language will be devoted to financial applications means it will need to have absolutely no exploitable security problems from day one, a hard threshold to get over even for serious, experienced people and an impossible one for move-fast-and-break-things organizations like we are seeing here. I assume a big focus for hackers will be trying to find vulnerabilites in the Move compiler, bytecode, and interpreter; no doubt there will be thousands during the first years.

There is also the issue of educating and training prospective developers in the new language. This is a huge effort in its own right, with complex documentation and course materials that need to be published in many languages. Since no one knows a new language, the entire workforce will be newbies for the first few years, not a good prospect for success.

This. To elaborate, since Oracle took on Java in 2010, over 600 vulnerabilities have been found in the runtime environment. 2013 was a busy year, with 180 vulns discovered. As @XXYY says, tracking and crushing all of these problems is a big maintenance task atop a huge development effort. There will be bugs, some of which will involve users losing money.

On the question of sovereignty, isn’t it conceivable that, after Libra takes off, Facebook would cease to rely on fiat currency created by states and just issue Libra à volonté, showcasing a perversion of MMT? Would it then make monetary policy, e.g. worry about inflation?